MTD (Making Tax Digital)
What is MTD
MTD is a significant change due to be implemented by HM Revenue and Customs as how businesses and individual tax payers report their income and trading results. Ultimately this will affect all taxes from self assessment, VAT and corporation tax. It will have some impact of most taxes other than payroll deductions (PAYE and National Insurance). The change is designed to make the reporting of taxes more streamlined.
So, what’s changing?
As the conversion to making MTD is quite extensive, HMRC plan to implement it in stages…
April 2019
HMRC’s VAT portal will be closed for completion of quarterly VAT returns. This means that VAT registered businesses will have to complete and file VAT returns using commercially available book keeping software. This will affect businesses that currently either keep VAT records on programs such as Excel, use book keeping programs that do not have the facility to submit an electronic VAT return, or are currently using the HMRC VAT portal to enter the figures on a VAT return for submission.
Expected during 2020 (or sometime thereafter)
This section is titled ‘expected during 2020’ as this stage has been pushed back by HMRC and exact timings are yet to be confirmed. This change is the big one however and will affect all businesses and self assessment tax cases. The proposed change is to convert the current annual reporting of company accounts and self assessment tax returns to a quarterly reporting basis.
This means that the annual exercise of completing accounts and all tax returns will change to a quarterly exercise (i.e. 4 submissions will be required every year). How this will work in practice has yet to be released by HMRC, however we believe it is likely to full in line with the VAT reporting system. This will mean that for businesses quarterly (3 monthly) profit and loss statements will be required, together with at least a final balance sheet per year, and for individuals 4 reports of income, tax suffered and tax due.
Initially it was planned that tax liabilities would also be settled on a quarterly basis; this appears to be removed from the latest plans. This, however could be introduced at a later date to bring every tax payer closer to employees who pay tax real time.
So, what do you need to consider?
If you are a VAT registered business, now is the time to review the method of VAT completion and submission to HMRC. You are likely to be affected from April 2019.
If you currently use book keeping software to complete and submit VAT returns, you should already be compliant with this change.
Due to the major system changes at HMRC, the 2020 quarterly reporting is highly likely to be introduced. At this stage it would appear book keeping software that is compliant is likely to be required (although this can not be confirmed until HMRC release further updates on how the system will operate).